Wednesday, November 12, 2014

The Demographic Tsunami

From time to time we have referred to the upcoming demographic tsunami and its debilitating impacts on the government's and country's fiscal welfare. You can see the tsunami coming in the huge gap between the 67 year old and 68 year old age distribution in the following graph. The 67 year olds were the first of the post World War II Baby Boomers (68 years old now). We are just three years into the first cohort of Boomers qualifying for Medicare. Year by year the number of new Medicare recipients will grow until about ten years from now when the annual incremental enrollment will be twice what it was just five years back. 

The stories and the ultimate expense impacts are similar for social security and other programs that grow with increases in the number of aged citizens.

There is a double whammy to this picture in that the Boomers will not only become takers; they will no longer be makers as their peak earnings years pass and their incomes and tax payments decline.

We are turning the corner, but going the wrong way. Here is how the Congressional Budget Office (CBO) shows federal deficits increasing back into the $1 billion to $1.5 billion range as a consequence.

As for projections, per standard practice CBO assumes away the business cycle. That is, it is assumed there will be no recessions between now and 2025, when the statistical probability is there will be two and it is a virtual certainty that there will be at least one recession. Without legislative change, the numbers going forward will almost certainly be worse than projected.

Halfway through his second term Dear President has done absolutely nothing to address the programmatic impacts of the tsunami. He will do nothing in his last two years in office either other than to lay back and trash any Republican that hints at spending reforms that will limit expense growth. 

Gridlock, thy name is Barack.

The tsunami rolls on. 

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